PM plays down job losses as 'growing pains'

PRIME Minister Julia Gillard has given a firm pledge to bring down a budget surplus in 2012-13, and played down rising job losses in manufacturing and office work as ''growing pains'' as Australia's economy moves to a higher level.

In a speech to the Australia-Israel Chamber of Commerce in Melbourne, she defended the higher dollar as recognition by global investors of Australia's economic strength and long-term prospects.

''Our success is driving the dollar,'' she said. ''In turn, the dollar is driving change, and in doing so it's making our economy leaner and stronger, forcing us to move more of our effort - more money, more equipment, more people - into the parts of our economy where we can create the greatest value.

''What is certain is our dollar is likely to remain relatively high for years to come.''

Ms Gillard also announced a new deal for vocational education students, allowing them to defer paying their fees until after graduation, in the same way as university students now do.

The government will also offer subsidised training places worth up to $7800 to students enrolling in entry-level courses in health, business, hospitality, construction, transport and other areas with skills shortages.

She gave an unequivocal commitment that the 2012-13 budget will be in surplus - implying further spending cuts and/or tax rises to offset deteriorating economic prospects.

The International Monetary Fund last month cut its forecast for Australia's growth in 2012 to 3 per cent, well below the 4 per cent the Reserve Bank forecast in November. By December 2012, this would fall to 2.5 per cent.

That would jeopardise Treasury's forecast of a thin $3.5 billion surplus in 2012-13, which assumes ongoing growth of 3.25 per cent. Chris Richardson of Deloitte Access Economics has urged the government to drop its surplus pledge and give priority to economic growth.

Ms Gillard rejected the advice. ''We will hand down a budget surplus in May,'' she said.

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Age Economic Survey: Is training the answer?

AUSTRALIA'S market economists are divided over whether the economy really is near full employment, as the Reserve Bank and Treasury claim with some saying the real problem is too little investment in skills training.

While Reserve Bank governor Glenn Stevens and senior officials are making a case for interest rate rises to prevent competition for skilled workers driving up wages and prices, economists in the private sector say there are other ways to solve the problem.

Economists in The Age survey argued for more resources to go into skills training, more initiatives to lift the country's low workforce participation rate, more skilled migrants to fill job gaps and more flexible working arrangements.

"Measures to alleviate skills shortages and otherwise encourage labour force participation are the best policy," said John Rothfield of Merrill Lynch. He and others were sceptical that higher migration was the solution, warning that we first need to build "enough supply of houses, utilities and transport systems to carry them".

NAB's chief economist, Alan Oster, warned that without "adequate skilled employees to meet burgeoning demand growth ... a consequence will be stronger wage growth and ... contractionary monetary policy".

Brian Redican of Macquarie ridiculed the official view that a 5 per cent unemployment rate means full employment. "Many other economies have been able to get unemployment below 4 per cent without generating higher inflation," he said. "Australia also achieved this in the '50s and '60s."

If it were true unemployment could not fall below 4.75 per cent without generating inflation, as officials imply, "it reflects a failure of policy to equip the unemployed with the skills demanded by the economy".

Greg Evans of ACCI was particularly trenchant. "The rate of labour force underutilisation stands at 12.2 per cent of the workforce, implying that roughly one in eight in the labour force, or 1.44 million people, are unable either to find work or sufficient hours of work," he said.

"There are a further 1.3 million people who want work, but are not classified as part of the labour force. It is difficult to reconcile supposed 'full employment' with the fact that the labour market is not meeting the needs of 2.7 million Australians."

There was widespread agreement on the panel that Australia needs to invest more resources in training its own workforce to meet its needs. Saul Eslake of the Grattan Institute argued for reducing effective marginal tax rates to improve incentives to work, and doing more to raise the "employability" of the unemployed and underemployed.

But Katie Dean of ANZ argued that training skilled workers takes time, and "in the short term", the best solution is to attract more skilled workers as permanent or temporary migrants.

Masters Builders economist Peter Jones warned that restricting entry of skilled workers would be "extremely damaging for the Australian economy", with skills shortages, project delays and bottlenecks inevitably leading to higher inflation, higher interest rates "and possibly recession".

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Balancing the books on education refund promises

THE Coalition's plan yesterday to extend the education tax refund to school fees got both sides hot and excited.

Education Minister Simon Crean accused the Coalition of opening a fiscal "black hole". Coalition finance spokesman Andrew Robb accused Labor of planning to cut access to family tax benefits.

Let's ignore all that to look at the key issues.

OK, start with the real question: which is the better policy?

Sure. Team A offers parents a tax break on the cost of buying iPads, other IT equipment and school uniforms. Team B would extend the tax break to cover school fees and extra-curricular costs, even sporting equipment. Which plan makes more sense?

To me, the Coalition's plan is clearly better, even if both go too far. School fees and tutoring bills at least are genuine education expenses, unlike iPads or sports gear. If you think parents deserve more support, surely this is a better way to give it.

Won't it go disproportionately to parents with children at non-government schools?

Yes, it will, and it's curious that the Coalition's six-page policy paper makes no reference to extending the tax break to include voluntary contributions by parents at government schools.

Perhaps none of them send their kids to government schools. But the two-thirds of Australian parents who do, deserve more than an offhand assurance by Tony Abbott that of course we'll include those payments.

Tony, it's not in your policy. How about giving parents a very clear commitment to that in print? Do it now.

That said, bear in mind that only families eligible for Family Tax Benefit A will qualify anyway, which excludes a lot of AB families — and, I'm sorry to say, a lot of Age readers. It's not welfare for the rich.

And the big question: is the Coalition's proposal fully costed?

Probably not. But there's probably only one person in Australia who knows, and (s)he is keeping quiet. It's really messy. Labor had estimated the plan would provide a bit over $1 billion a year in benefits. But by June, only $606 million had been claimed for year one, a takeup rate of 60 per cent.

Why? First, claims were lodged for only 1.7 million of the 2.1 million students now deemed eligible. Second, only 32 per cent claimed the full amount: $375 for primary students, and $750 for secondary.

So in May, the government quietly cut its estimate of the future cost to about $750 million a year (or $3.1 billion over four years).

Then Julia Gillard extended it to school uniforms, at a cost of $340 million over the four years. That estimate assumed 10 per cent more claims in all, and roughly half the existing claimants getting much bigger rebates.

It looks like the Coalition might have been working off earlier, smaller estimates of the takeup in arriving at its cost estimate.

To me, its costing looks too low. But even if it is, it won't bankrupt us.

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Skills shortages still hampering business growth

THE federal government is pouring billions of dollars into training skilled workers. Six hundred thousand Australians are unemployed yet skills shortages have re-emerged as a key problem for business.

Two new reports show the number of trade apprentices taken on last year dropped to a five-year low, while one in three firms say skills shortages will hold back their operations this year.

The National Centre for Vocational Education and Research reports 15,000 fewer people started trade apprenticeships or traineeships in 2009, with slumps of more than 20 per cent in key sectors such as construction, automotive and electronics trades.

And an Australian Industry Group survey found that almost half the firms surveyed believe skills shortages will be limiting their operations by 2015 with many saying that is happening now.

"Skills shortages are set to intensify with a vengeance, and are arguably the number one threat to our economic growth", said Ai Group chief executive Heather Ridout.

"Businesses are seeking to do their share of the heavy lifting by putting on more apprentices where possible. For government, addressing skills shortages needs to be put right at the top of the policy agenda."

Ms Ridout urged the government to lift funding for vocational education and training to allow for 3 per cent growth each year in apprentice numbers, and lock in the temporary bonus for trade apprentices. The good news in the apprenticeship figures was that last year saw a record 46,200 people complete trade apprenticeships, and 91,100 completions in other occupations. The bad news was that commencements plummeted, and dropout rates remained astoundingly high.

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